As crude prices falter, is Big Oil worried about price cuts?

Oil prices were looking up at the start of 2017, with crude hitting a high of $58 a barrel in January after dropping to $27 in 2016. But oil prices have started to flounder again, and the big oil companies are preparing to do some more belt-tightening.

Last November, the historic Organization of Petroleum Exporting Countries (OPEC)-led production cut in crude oil managed to buoy oil prices, creating a rosy picture for oil's future, and for awhile, investors and Big Oil alike, were able to breathe a little easier.

However, even though investors were beginning to bet on firm oil prices, and even though the price per barrel did reach $55 in February, it has been a rocky road since that time, seeming fueled by an increase in shale production in the U.S., confounding any attempts by OPEC to stabilize global oil prices.

And adding to the disturbing picture, in May, President Trump's proposed 2018 budget came out with the announced opening of the coastal plain (Area 1002) of Alaska’s Arctic National Wildlife Refuge to oil drilling and a proposal to sell off one-half of U.S. oil reserves starting in October, reported to be in the neighborhood of 688 million barrels of oil.

With all that is going on, Business Insider reports today that Brent crude prices have slipped again, below $55 a barrel, forcing banks to lower price forecasts. Investors are now focused on big oil companies, like Exxon Mobil, and Royal Dutch Shell, wondering if they will be able to live within their means, now that oil has failed to recover to the magical $60.

Crude oil pipes at the Bryan Mound site, the largest of the four SPR storage sites - near Freeport, TX.

Department of Energy

Big Oil has already been thinking of the future

Surely investors have not forgotten the sharp cuts made by Exxon, Chevron, Shell, BP, Total, Eni and Statoil, the major petroleum companies referred to as Big Oil, since the mid-2014s when oil prices collapsed after seeing oil at $100 a barrel.

Big Oil has laid off thousands of employees, sold assets, halted or scrapped projects and taken other austerity measures to ensure their sustainability. And today, the cost-cutting has paid off. Net income looks to double for the quarter that ended on June 30, as compared to a year ago, even though oil prices are back to what they were then.

Looking that all that has been going on, many analysts say the crux of the matter is that shale production in the U.S. is flooding the country. Yes, rigs and people were put back to work. Between cutting costs and using more innovative ways to get the oil out of the ground, many oil companies have put themselves in a position to thrive with oil at $50 a barrel.

Summing it all up, according to Reuters

A point to consider, although it is not widely published, is Saudi Arabia's crude inventories. Their inventories are down much more severely than the U.S.'s inventories. After peaking in 2015, Saudi Arabia's crude inventories have declined sharply every month, a sure sign that the market outside the U.S. has been tightening up.